New Delhi: Warning that any regulation of CEOs’ pay by the government could breed “corrupt practices”, leading global consulting firms have said decisions on salaries of top executives should better be left to the market.
“It (cap on salaries of CEOs) would lead to companies finding ingenious ways to circumvent regulation, resulting in undesirable opacity and in extreme cases corrupt practices,” PricewaterhouseCoopers executive director R Sankar said.
Joining the debate on CEOs’ salaries, Ernst and Young partner and national head, Human Capital, Advisory Services, N.S. Rajan said, “the market itself is a good judge on what needs to be paid.”
Similarly, Deloitte’s senior director, Management Consultancy Services P Thiruvengadan said, “international talent is willing to be employed in India...unthinkable a few years back. Any artificial cap (on salaries) would lead to flight of talent.”
The debate on the pay packets of industry honchos was triggered by remarks of corporate affairs minister Salman Khurshid who had said, “When we are working on this (austerity), we can hardly say that we (will) shut our eyes on what salary the CEOs are going to take.”
PwC’s Sankar further said while the government should have no role in fixing remunerations of CEOs, “better disclosure of CEO pay, non-biding shareholder votes on CEO pay can be considered for devising a way to keep a check”.
The independent directors, Deloitte said, should take the right approach to remunerations related to performance and be held accountable by shareholders when apparent and clear violations emerge.
The government should give freedom to the boards to operate and have faith in their capabilities, E&Y said.
“CEO compensation remains to be the acid test of corporate governance,” the consultant added.